Leave Encashment is Taxable

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musabbir

musabbir (Querist)
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23 November 2019 Please let us know the Leave Encashment is Taxable on resignation for Private Employees

A.S.SUNDARARAJAN

A.S.SUNDARARAJAN (Expert)
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23 November 2019

The income tax applicability for leave encashment for private employees is subject to tax . But Exemption to certain extent is available under Section 10(10AA): The related provisions are given below.

A part of the leave encashment income at the time of superannuation or resignation is exempt from income tax payment. This exemption is applicable to the lowest of the below amounts:

Rs. 3 lakh
Actual leave encashment amount
Average salary (basic salary + dearness allowance) of the last 10 months before the employee’s retirement or resignation
Cash equivalent of pending leave days. The leave basis is a maximum of 30 days leave for every year of service.

I explain with the example.
Leave salary earned : Rs.720000
Basic + DA - 36000
Number of years of service : 25
no of days eligibility per year : 30 days
Leave salary days : 200 days
Act

Whichever is lower of the following
1. rS.3,00,000
2. Rs.7,20,000 ( 200 days x rs.36000)
3. 10 Months x rs.36000 = rS.3,60,000
4. 25 Years x 30 days = 750 days less availed 550 days = 200 days x 1200 ( 36000/30) = 240000

Exemption amount lowest of the above is Rs.240000 and taxable amount is for Rs,480000 ( 720000-240000)

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